Alternative Dispute Resolution provides new way of resolving disputes with HMRC
Following a 2 year trial and extensive consultation with professional bodies and the voluntary sector HMRC have announced that Alternative Dispute Resolution (ADR) for SMEs and individuals will now become a permanent fixture.
Taxpayers who took part in the trial have told HMRC that they like the speed and flexibility of ADR and evidence has shown that by using the simple ADR service many disputes can be significantly shortened and resolved without recourse to Tribunal.
HMRC have listened to feedback and increased their capability and created a new national team of specially trained facilitators to help resolve tax disputes.
ADR involves an independent person from HMRC (called a ‘facilitator’), who has not been involved in the dispute before. The facilitator will work with both the taxpayer and the HMRC officer to try to broker an agreement between them. The service has apparently proven to be an effective method of resolving disputes in a quick and efficient way, not just for tax but in the commercial world as well.
The mediation service is available to SME and Individual taxpayers where a tax issue is in dispute, whether or not an appealable tax decision or assessment has been made by HMRC. Although ADR is available before or after an appealable decision is made, the application should not be made too early i.e. the HMRC officer needs to obtain relevant facts, nor too late i.e. too close to a Tribunal Hearing. The best time to apply for ADR is after all relevant facts have been established and an impasse has been reached.
ADR covers both VAT and direct taxes disputes, and entering into the ADR process will not affect a taxpayer’s existing review and appeal rights. The service is open to all taxpayers nationwide whose tax affairs are handled by HMRC’s Local Compliance SME and Local Compliance Individuals and Public Bodies business units. More Local Compliance taxpayer’s will be able to access this service in the coming months and details will follow in due course.
ADR cannot guarantee resolution of the dispute but by the end of the process, whether or not the dispute is resolved, a person will have clarity on the outstanding issues and what happens next.
If HMRC are unable to intervene then a taxpayer will be told as will the relevant HMRC officer and manager to let them know that a request to resolve matters has been received. The Revenue officials will be asked to make contact and take appropriate steps to progress the dispute. The taxpayer will then be informed within 30 days whether or not they can be included in the ADR process.
When HMRC do intervene, the taxpayer will be expected to complete a simple ADR process agreement, known as the Memorandum of Understanding, to confirm participation and commitment to ADR. The facilitator will work closely with the taxpayer and the HMRC officer who has been dealing with the case, in an open, flexible and impartial way to see if the dispute can be settled.
The key requirement of all ADR cases will be a genuine desire and commitment on the part of all parties to promptly progress matters and thereby limit costs wherever possible. A persistent failure on the part of any party to address the requirements of the ADR process will result in the removal of the case from ADR. Applicants will receive a copy of the ADR Memorandum of Understanding that they will be expected to comply with on receipt of their application. If an applicant does not comply, their dispute may be removed from the process.
Cases potentially suitable for ADR process may involve the following features:
- Facts which are capable of further clarification
- Disputes that may benefit from obtaining more suitable evidence
- Fact and/or technical matters in which there is legitimate scope for any party to obtain a better understanding of the other’s arguments
- Issues which are capable of further mediation and settlement by agreement within the framework of the Litigation and Settlements Strategy (LSS)
Litigation and Settlements Strategy (LSS)
The LSS sets out a number of principles which must guide all HMRC officers involved in the resolution of disputes. Among these are the requirements that:
- all issues should, where possible, be resolved in non-confrontational and collaborative ways without entering into a dispute
- all disputes should be dealt with on their own merits and ‘package’ deals can never be an appropriate basis of settlement
- it is always appropriate to have regard for materiality
ADR could therefore be used in protracted IR35 enquiry cases that have reached stalemate and it may be worth using the service rather than to be continually frustrated by a stubborn HMRC status inspector. After all there is nothing to lose in doing so.
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